Related papers: Correlation breakdown, copula credit default model…

This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the…

CDS (credit default swap) contracts that were initiated some time ago frequently have spreads and/or maturities that are not available on the current market of CDSs, and are thus illiquid. This article introduces an incomplete-market…

We consider a simple model of rational agents competing in a single product market described by simple linear demand curve. Contrary to accepted economic theory, the agents' production levels synchronise in the absence of conscious…

A class of discrete renewal processes with super-exponentially decaying inter-arrival distributions coincides with the infinite volume limit of general homogeneous pinning models in their localized phase. Pinning models are statistical…

We present a statistical test that can be used to verify supervisory requirements concerning overlapping time windows for the long-term calibration in rating systems. In a first step, we show that the long-run default rate is approximately…

This paper considers the problem of measuring the credit risk in portfolios of loans, bonds, and other instruments subject to possible default under multi-factor models. Due to the amount of the portfolio, the heterogeneous effect of…

SOFR derivatives market remains illiquid and incomplete so it is not amenable to classical risk-neutral term structure models which are based on the assumption of perfect liquidity and completeness. This paper develops a statistical SOFR…

We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…

The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…

We present a dialogue on Funding Costs and Counterparty Credit Risk modeling, inclusive of collateral, wrong way risk, gap risk and possible Central Clearing implementation through CCPs. This framework is important following the fact that…

We develop a model for the dynamic evolution of default-free and defaultable interest rates in a LIBOR framework. Utilizing the class of affine processes, this model produces positive LIBOR rates and spreads, while the dynamics are…

We present an approach, based on deep neural networks, that allows identifying robust statistical arbitrage strategies in financial markets. Robust statistical arbitrage strategies refer to trading strategies that enable profitable trading…

Financial networks model a set of financial institutions (firms) interconnected by obligations. Recent work has introduced to this model a class of obligations called credit default swaps, a certain kind of financial derivatives. The main…

Microfinance, despite its significant potential for poverty reduction, is facing sustainability hardships due to high default rates. Although many methods in regular finance can estimate credit scores and default probabilities, these…

We discovered that past changes in the market correlation structure are significantly related with future changes in the market volatility. By using correlation-based information filtering networks we device a new tool for forecasting the…

In this paper, we propose a dynamical model to capture cascading failures among interconnected organizations in the global financial system. Failures can take the form of bankruptcies, defaults, and other insolvencies. The network that…

The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…

As it is known in the finance risk and macroeconomics literature, risk-sharing in large portfolios may increase the probability of creation of default clusters and of systemic risk. We review recent developments on mathematical and…

We study super-replication of contingent claims in an illiquid market with model uncertainty. Illiquidity is captured by nonlinear transaction costs in discrete time and model uncertainty arises as our only assumption on stock price returns…

In this work, we consider the optimal portfolio selection problem under hard constraints on trading amounts, transaction costs and different rates for borrowing and lending when the risky asset returns are serially correlated. No…